H&M's quarterly profit rose 23%, but about 4% without a one-time tariff gain

The Swedish clothing retailer H&M reported a 23% jump in third-quarter operating profit on Thursday, to SEK 6,037 million from SEK 4,914 million a year earlier, in its nine-month report for the period to Aug. 31. The Wall Street Journal credited cost cuts; Reuters focused on slow sales, reporting that the company promised change.

Both are true. But the headline profit number needs an asterisk the company itself supplies.

The number behind the number

H&M says its quarter was helped by "one-time effects of approximately 1.6 percentage points from tariffs and goods imports that had increased the cost of goods sold in previous quarters." That lifted both the gross margin, to 54.0% from 52.9%, and the operating margin, to 10.6% from 8.6%.

Apply 1.6 points to quarterly sales of SEK 57,189 million and the one-off is worth roughly SEK 915 million. Take it out and operating profit is about SEK 5,120 million, up about 4% from a year ago rather than 23%. The underlying operating margin is about 9.0%, against 8.6%. That is our arithmetic from the company's own figures, and it is still an improvement, just a much smaller one.

The sales line is the weak spot. Net sales edged up to SEK 57,189 million from SEK 57,017 million, and rose 1% in local currencies, with about 2% fewer stores. H&M expects September sales to be up 1% in local currencies. For the nine months, sales in local currencies were flat.

Inventory rose to SEK 39,355 million from SEK 37,938 million, which the company put down to more goods in transit because of supply chain disruption and its European warehouse consolidation.

Where the stores are going

H&M ended August with 4,023 stores, 95 fewer than a year earlier. The cuts are concentrated in Asia, Oceania and Africa, down to 886 from 967. North and South America is one of only two regions with more stores than a year earlier, 761 against 754, though it has closed a net 8 so far this financial year. For 2026 the company plans about 90 openings and about 170 closures.

Who it hits: the Black Friday warning

The most useful line for other retailers is in the outlook. H&M expects markdown costs as a share of sales to rise "somewhat" in its fourth quarter, because the discounting run-up to Black Friday "has become longer and more extensive" and Cyber Monday falls in November this year.

If a company with H&M's buying power expects to give up more margin to holiday discounting, an independent clothing or gift shop should plan for the same pressure, earlier. The practical step is to price holiday stock now with a deeper markdown built in, rather than finding out in late November that the big chains started cutting three weeks before you did.

112,779 independent retail stores are listed on CheckThisBiz, a directory of 7,704,724 independent US businesses, including 14,307 in CA, 9,799 in TX, 9,064 in NY. Chains and franchises are excluded from that count, so these are the owner-operated businesses that actually apply for funding.

Independent retailers also face the same tariff costs that H&M is now partly recovering, without the scale to negotiate them down. Costco said Thursday its quarter included a 15-cent-a-share benefit from tariff refunds, as we reported. Big retailers are booking tariff gains this quarter, which is a reason for smaller importers to check with their customs broker whether any duties they paid are eligible for refund.

Sources: H&M Group nine-month report, Wall Street Journal, Reuters. Underlying profit figures are our calculation from company data. This is market information, not investment advice.